Actuarial Science

Actuarial Science is the science behind insurance and pensions. Actuarial Science may be defined as a specialised sub-domain of finance. When the money to be received and/or paid isn’t known in advance or the time of payment isn’t known beforehand or both, then we need Actuarial Science to evaluate such cashflows and to manage their consequences.
At the macro-economic level, it is crucial to ensure the smooth ‘circular flow of money within the economy’ without with there isn’t any growth that generates new employments and reduces poverty.
It’s important to realise that actuaries are neither mathematicians, nor statisticians, nor economists, nor computer geeks. Actuaries – the practitioners of Actuarial Science – use all of these as their tools in the field of finance. Hence, it’s apt to say that Actuaries are finance professionals specially trained to handle contingentcashflows.

It’s only and only a matter of costs. It costs almost 5 times as much to pursue Actuarial Science from UK than from India. Still, nowadays, almost 75% actuarial aspirants choose to pursue it from UK only. Why is it so? We’ll explain in a while. Before that, please note that the syllabus and the study material are both set and determined by the UK institute IFoA, the Indian institute IAI just follows that syllabus and study material without questioning. Moreover, there is a mutual recognition between the two institutes such that any paper that you clear from one institute is exempted from the other institute. Most importantly, there is absolutely no difference when it comes to employment opportunities.

So, the only difference is about the pass rates. While the UK institute has a pass rates in excess of 40%, the Indian institute has a pass rate of below 15%. This is, in our opinion, mainly due to unbalanced exam papers and virtual absence of vetting of Indicative Solutions.

Having said all this, we still encourage you to pursue it from India and put in the extra efforts. To succeed, you need to be smart in choosing to leave a question or two in the exam. By focusing on the remaining part, you can substantially improve your own pass rate from India.

Core Technical (CT for short) is the first step towards being an actuary. This series has in all nine papers that are mandatory for all but can be undertaken in any order. Here is a brief description of all the nine papers.

CT 1 – Financial Mathematics

It’s your first peek into the world of finance. You get to learn to deal with various interest rates quotations & compounding frequencies, series of cashflows (annuity), investments and securities with their pricing, project appraisal, derivatives & arbitrage, ALM & immunisation etc. In short, you learn to handle finance in mathematical terms and that is the very foundation of Actuarial Science.

CT 2 – Finance and Financial Reporting

It’s your stepping stone to understand who all might be interested in a company’s financial statements. What standards of preparing a company’s financial statements have evolved and have been established over time? How and what information can be obtained from such financial statements and how that information can be used for effective decision making?

CT 3 – Probability and Mathematical Statistics

It’s your first peek into the understanding and measurement of randomness. You get to learn to handle random variables, probability distributions, estimation and inference and testing various hypotheses. You also get to learn to make use of co-variability i.e. two random variables moving more or less in tandem. This knowledge would remain useful throughout your Actuarial career.

CT 4 – Models

It’s your first peek into the techniques of isolating order and pattern from the clenched jaws of chaos. How to focus on the essence of things and not to be distracted by the noise around that essence is the core ability for successful modelling exercise. It’s is strongly recommended that this paper is undertaken ONLY after CT3 not before. It’s a good test of your analytical and application skills – the two important assets in the Actuarial field.

CT 5 – General Insurance, Life and Health Contingencies

Notwithstanding its name, it has nothing to do with general insurance. It primarily deals with Life Insurance with two chapters devoted to Pensions. However, some of the methods and techniques covered can be applied to certain Health Insurance products. Its last chapter introduces you to the possible mistakes that might be made while analysing past data on deaths, claims or sickness.

CT 6 – Statistical Methods

It’s your first peek into the world of General Insurance mathematics and how statistical methods are used in general insurance. You get to learn about decision theory, Bayesian Statistics, credibility theory, ruin theory, various loss models, reinsurance arrangements and their benefits, IBNR, run off triangles, Monte Carlo simulations and time series analysis. It’s is strongly recommended that this paper is undertaken ONLY after CT3 not before.

CT 7 – Business Economics

It’s your window to understanding the functioning of an economy at a micro and a macro level. You get to learn how consumer make their decisions, how the markets function, how the price mechanism allocates scarce resources in an optimal manner, how producers make their production and supply decisions. At macro level, you get to learn to measure economic activity, growth etc. You get to understand government finances and central banking and their impact on the various economic variables like inflation, employment, GDP, exchange rate, trade deficit, balance of payment etc.

CT 8 – Financial Economics

Not to be carried away by its name, it is important to note that almost three fourths of this paper is devoted to derivatives and their pricing with special emphasis on the celebrated Black-Scholes option pricing formula. Other things that it covers include, CAPM. MPT, APT, Multi-factor and single-factor models, EMH, Behavioural finance, Stochastic dominance, Utility theory under uncertainty & certainty equivalent, interest rate models and credit risk models, besides the David Willkie Model. It’s is strongly recommended that this paper is undertaken ONLY after CT3 and CT4 not before.

CT 9 – Business Awareness Module

It’s your first exposure to the world of actuarial science especially the statue and the regulations governing it. You are also introduced to the code of conduct and code of ethics expected from a professional actuary. You are also trained to think strategically in practical business situations. Of all CT papers, this is the only one conducted online and most students do not find any need for taking tuitions for it.

Core Application(or CA series for short) has three papers. If you clear the entire CT & CA series you would become an Associate Member of IAI or IFoA, provided you have at least one-year’s actuarial work experience.

CA1 – The six hour paper, conducted in two sittings of 3 hours each – isyour complete overview of the Actuarial field without going into any specialist detail of anything. The CA1 syllabus is designed to help you develop a broader overall understanding of all things actuarial. This way, you get a better understanding of the ‘big picture’ and hence can figure out your ‘interest area’ for specialisation.

CA 2 – This online three hour exam tests your ability to analyse a given problem actuarially, then to make a model from scratch – from actuarial assumptions to output. You are supposed to create a model using MS Excel and then to document it by writing out the ‘Audit Trail’ and the ‘Summary’.

CA 3 – This is an ‘on-site’ exam with a presentation made to a live audience. This actuarial exam seeks to test your communication skills.

Written, oral and oration all sorts of skills are tested. It is much easier to use ‘difficult words and expressions’ than to convey the same idea using ‘simple words and expressions’. More technical the field is more important it becomes to convey it as simply as possible. This is what CA 3 examiners seek to test.

ST Series has in all eight papers numbered ST 1 to ST 9 (there is no ST 3, now) out of which you have to pick and clear only two, depending upon the actuarial field or sub-domain you wish to specialise in. As of now, InflexionPoint provides coaching for ST5, ST6, ST2 and ST1 only. ST1 is Health Insurance, ST2 is Life Insurance, ST4 is pensions and employee benefits, ST5 and ST6 are both on Finance & Investments; ST7 & ST8 both deal with General Insurance. The recent addition ST9 is Enterprise Risk Management.